Tennessee Insurance Practice Exam

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Prepare for the Tennessee Insurance Exam. Master flashcards and multiple-choice questions—each with hints and explanations. Ace your exam with confidence!

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What type of retirement account allows tax-free withdrawals after certain conditions are met?

Traditional IRA
Roth IRA
Simple IRA
401(k)

The correct answer is: Roth IRA

A Roth IRA is the type of retirement account that allows for tax-free withdrawals after specific conditions are met. The primary condition is that the account holder must be at least 59 ½ years old and have held their Roth IRA for at least five years. This benefit is a significant incentive for individuals saving for retirement, as it means that any earnings generated within the account can be withdrawn without incurring federal income tax, provided the rules are followed. In contrast, other retirement accounts like the Traditional IRA and 401(k) generally involve tax-deductible contributions and tax payments upon withdrawal. With a Simple IRA, while contributions may be deductible, withdrawals are taxable, and early withdrawals can incur penalties. The Roth IRA stands out because it offers the opportunity for tax-free growth and tax-free income in retirement, making it an attractive option for many savers looking to maximize their financial security.